Xero was selected based on investors' ability to identify firms they expect to be innovative now and the future. It was listed No. 1 ahead of other companies with under $10 billion in market capitalization. These include companies such as NetSuite, AthenaHealth, MercadoLibre, Gartner, Kate Spade and Daewoo.

"It's an honor to be listed No. 1 by Forbes," said Rod Drury, CEO of Xero. "We're thrilled that investors see how we're transforming the lives of hundreds of thousands of small businesses and accounting professionals so they can more easily manage their books and run their businesses."

The methodology for the list is based on the framework espoused in "The Innovator's DNA." It ranks companies by their innovation premium: the difference between their market capitalization and a net present value of cash flows from existing businesses. Xero received a 91.7 innovation premium followed by NetSuite with 89.0 and Monitise with 85.6.

"Xero ranked at the top of our World's Most Innovative Growth Companies based on its astonishing rise and that investors believe it will continue to grow, profit and innovate," says Hal Gregersen, Executive Director of the MIT Leadership Center. "On a personal level, I am deeply inspired by Rod Drury's innovative leadership and his ability to ask the kinds of questions that have led him to disrupt the accounting software market. I suspect we'll be hearing a lot more about Xero in the future."